If you look at the stock market from a 20 yr perspective, you would see that from a long term perspective it is not as volatile as we believe; January 1991 the market closed at 2610.
Short term and it has been very volatile, but even with yesterdays close, let's remember that since the low of 2008; 7449 it still has increased by 25% over 3 yrs.
Nobody that retires pulls everything out right away, they take it in increments to last over decades, due to this fact that would still allow money to grow.
Now at the same time retirement pay adjustments have been tied to COLA, below COLA, or frozen, so with every yr that passes their bang for their buck has actually eroded compared to the stock market results.
The problem that I see with going the 401 K route is not the market, but self control. How do you force/mandate for them to save enough to meet their needs. Try telling an 18 yo to invest 10/15/25% of their paycheck and not touch it for 20+ yrs. You can penalize them up the wahzoo for early withdrawal, but you know when they see that bigger house, they think, well I'll withdraw X amount for the deposit, because it is an investment, only to not understand that when they go to sell it 3 yrs later they may not re-coup that money.
This is the problem we have seen with the housing market, people assumed that they could use their home as a piggy bank with no repercussions. Now, many have lost their home or at best or under water.
You can stop the piggy bank issue, but it would have to come with what is known as vested, in other words they can't get any money unless it is due to some catastrophic reason for X amount of yrs. or leave, but if they leave before "vested" they only get to take what they invested. This would allow the military to retain members for a longer period and it would remove the question of losing personnel. In essence, it would become the new 20 yr 50% pay. If you leave at 15, you get your investment, but not the match.
Here is my other problem with the 401 K philosophy instead of our current system. Who will be in charge of this program? Will we create a new empire using DOD/taxpayer dollars to oversee it? Will we fill it with only and only Finance/Econ majors or will we place people in to fill desks? Or will you just change the name of the office and allow the people who were in charge of retirement pay to stay and be in charge of deciding what companies to invest into for the govt?
That's the thing to me, theoretically this sounds sound, but realistically when it comes to a finesse issue I am not sure I am willing to trust the military to decide how my money should be invested. Let's be real...Solyndra didn't meet the Bush administration stds., but it did for Obama's administration, and 1/2 of a billion dollars of taxpayer money later they folded.
OBTW, govt civilian employees new hires do the 401K, they are told that to get that 50% after 20 yrs, you need to invest X% with the expectation that it will have y% ROI and you will take Z% out per yr. after retirement. There is no mandate to invest at that level, nor to invest in a particular level of aggressiveness (A, B or C).
If you look at the UK, you will see one of their big problems for retirees (pensioners) that had served in the military is that they have many hurting because they do not have our military retirement pay system.
